A.R.A.S. 3.1 valuation guidelines

1. A.R.A.S. 3.1 valuation guidelines General Insurance Annual Statement Composition and Valuation Guidelines Non-Life (General) insurance companies

2. Table of Contents • Consolidation • Affiliates • ARAS work papers • File description and valuation • Admissibility Assets • Provision for doubtful collection • Technical Provisions • Guidance File 226-A

3. Table of Contents (cont’d) • External auditor’s role • External auditor’s opinion • External actuary’s role • Reconciliation sheet • Access to guidelines • Call for comments

4. Consolidation • Line-by-line consolidation of fully or partially owned (majority interest) insurance subsidiaries is not permitted • These should be reported as an asset (line 2.2) on the balance sheet and valued based on the equity method • Line-by-line consolidation is allowed for fully or partially owned (majority interest) subsidiaries not engaged in the insurance business

5. Affiliates • Affiliates are defined to be: • entities that are fully or partially owned by the company • entities that fully or partially own stocks of the company • entities on which the full or partial owners of the company have control • entities of which the majority of the supervisory and/ or managing directors also represent the majority of the supervisory and/ or managing directors of the company

6. Affiliates (cont’d) • The respective balances with affiliates should be reported on one of the following accounts, without netting: • Loans and other interest bearing receivables due from affiliates • Non-interest bearing receivables due from affiliates • Payable to affiliates • Except: • Balances with affiliated (re)insurance companies regarding reinsurance business • Balances with affiliated brokerage companies regarding sale of insurance policies

7. ARAS work papers • Work papers used to complete ARAS should be kept on site • These work papers include a reconciliation of accounts in the company’s general ledger/ trial balance to accounts in ARAS • Work papers should be kept at a minimum for Files 203, 205 and 210. • Work papers should be kept for a minimum of 2 years

8. File description and valuation • All Files in ARAS have been described • Detailed description of accounts in Files 203, 205 and 206 • Valuation guidelines provided for each account in File 203 • A Glossary of terms is provided

9. Admissibility of Assets • Admissibility requirements are imposed on the following balance sheet asset accounts: • Intangibles: non-admissible • International stocks: only investment grade admissible • International bonds: only investment grade admissible • International investment funds/ pools: only investment grade admissible • Local investments (stocks, bonds, funds): admissibility subject to impairment test

10. Admissibility of Assets (cont’d) • Admissibility requirements are imposed: • Mortgage loans: excess balance above 70% of current appraised market value is non-admissible • except excess ≤ amount secured by Guarantee Fund • Collateral loans: excess of outstanding balance above fair value of pledged assets is non-admissible • Interest and non-interest bearing due from affiliates: excess above applicable limits is non-admissible

11. Admissibility of Assets (cont’d) • Admissibility requirements are imposed : • Deposits at foreign banks: only deposits at banks rated investment grade are admissible • Reinsurance recoverable on paid claims: amounts non-admissible if the insurer may not receive them due to insolvency of reinsurer or disputes about amount of coverage • Company should report in File 202, line 1: • total balance of non-admitted assets that weren’t reported in the Statement, divided between the several asset classes

12. Provision for doubtful collection • Agents & Brokers Debit Balances: • not less than those receivables which are in excess of 90 days past due. • Direct Business uncollected premium: • non-installment premium: not less than those receivables which are in excess of 90 days past due. • installment premium: which are not paid on the agreed installment date, the provision should not be less than those installments which are in excess of 90 days past due.

13. Technical Provisions • Accident & Sickness provisions: • Calculation based on a non-actuarial approach is permitted • The actuarial approach is preferred when it involves periodic payments caused by long tail claims due to for example critical illnesses • Based on prudent, reliable and consistently applied principles • Certification by external actuary

14. Technical Provisions (cont’d) • Liability Adequacy Test (LAT) • Test done by company to determine whether the reported provisions at year-end are adequate • The minimum requirements are: • The test considers current estimates of all future contractual cash flows, and of related cash flows • Test is done on the level of portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio • If test shows that reported provision is less than the calculated LAT-amount, the entire deficiency should be recognized in the profit & loss account

15. Technical Provisions (cont’d) • The LAT regards the following provisions reported at year-end: • Net Claim provision • Claim Adjustment Expenses provision • Results of LAT should be submitted to CBCS • Ceded provisions • non-admissible if the insurer may not receive these amounts due to insolvency of reinsurer or disputes about amount of coverage

16. Guidance File 226-A • Definition of natural and man-made disasters • Probable Maximum Loss as the consequence of any credible disaster event • Intensity of the event, vulnerability of the insured objects and concentration of insured objects should be considered • Benchmark: company should withstand a 1-in-200 year industry loss event • List of natural and man-made hazards to be considered for each line of business • Provide info on CAT modeling software used

17. External auditor’s role • Article 26, paragraph 2 of National Ordinance: • Provide auditor’s opinion on the General Statement • Mark hard copy General statement for identification purposes

18. External auditor’s role (cont’d) • The external auditor should be authorized by the company by a provision in the contract to: • Supply the CBCS with written information about the company reasonably considered necessary in order for the CBCS to comply with her duties. [when asked by CBCS] • Agree with the CBCS on the conditions or circumstances encountered during his duties which warrant informing the CBCS a.s.a.p. [voluntarily supplied to CBCS] • CBCS will send copy of received info to the company

19. External auditor’s opinion • The Statement is based on own accounting and reporting principles • Certification of the Statement should be based on the General valuation guidelines! • ‘According to notes’ opinion • CBCS proposed a standard unqualified ‘according to notes’ opinion to be issued on the Statement

20. External actuary’s role • Issuance of opinion on the value at year-end of any provision that is calculated based on an actuarial basis • Signing of the hard copy file 216

21. Reconciliation sheet • Regards a reconciliation of the reported Total Assets, Total Equity and/ or Net Results in the Statement with corresponding values in the company’s own financial statement • To be submitted with the Statement if a difference exists • Not applicable to local branch offices which don’t issue own financial statement

22. Access to guidelines • Go to www.centralbank.an • ‘Click’ on the ‘Login’ icon on the ribbon • Username: autoflow • Password: CentralBank2 • ‘Click’ on link ‘Annual Reports Automated Statements (ARAS)’ • Access folder ‘ARAS 3.1’

23. Call for comments • 6 weeks available to submit comments starting today • Only via ARAS@centralbank.an • Proposal: • Onshore insurers: joint response via N.A.V.V. • Int’l insurers: joint response via C.I.A.C. • Non-affiliated insurers: separate response • External auditors: joint response via N.A.V.A. • External actuaries: separate response

24. Questions??